Complete blog article and study: http://ged-project.de/2014/03/31/profits-globalization/ Globalization, understood as the economic, political and social interconnection of countries, leads to increased economic growth. On average, the more a country proceeds its interconnection with the rest of the world, the greater its economic growth will be. If real per capita gross domestic product (GDP) is chosen as the reference index for the economic benefits of globalization, Finland can point to the largest gain from globalization from 1990 to 2011. Ranked according to this perspective, Germany holds fourth place out of a total of 42 economies evaluated.

1. Dr. Thieß Petersen
Program
Shaping Sustainable
Economies
Phone:
+49 5241 81-81218
Email:
thiess.petersen@
bertelsmann-
stiftung.de
Dr. Michael
Böhmer
Prognos AG
Phone:
+49 89 954 1586-
701
Email:
michael.boehmer@
prognos.com
Dr. Johannes
Weisser
Prognos AG
Phone:
+49 89 954 1586-
704
Email:
johannes.weisser@
prognos.com
PolicyBrief#2014/01
Who profits most from
globalization?
Globalization, understood as the economic, political and so-
cial interconnection of countries, leads to increased eco-
nomic growth. On average, the more a country proceeds its
interconnection with the rest of the world, the greater its
economic growth will be. If real per capita gross domestic
product (GDP) is chosen as the reference index for the eco-
nomic benefits of globalization, Finland can point to the
largest gain from globalization from 1990 to 2011. Ranked
according to this perspective, Germany holds fourth place
out of a total of 42 economies evaluated.
Focus
Without the globalization that occurred be-
tween 1990 and 2011, average annual per
capita gross domestic product during that
period in Finland would have been €1,500
less. In Germany, the per capita gross do-
mestic product benefit from growing glob-
alization was €1,240 per year. In China and
India, per capita gains were only €80 and
€20, respectively.

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FutureSocialMarketEconomyPolicyBrief#2014/01
“Globalization” is one of those alluring
terms that allow for numerous interpreta-
tions. It is often taken to be equivalent to
increased world trade. But that doesn’t do
the concept justice because globalization is
much more than a simple expansion of
global trade in goods and services. Accord-
ing to Joseph Stiglitz, globalization encom-
passes many aspects of life in society: the
international flow of ideas and knowledge,
the sharing of cultures, global civil society
and the global environmental movement
(Stiglitz 2006). From this perspective, glob-
alization describes the ever stronger eco-
nomic, political and social interconnected-
ness of the world. The question of whether
that is a blessing or a curse for humanity is
answered in different ways. Proponents of
globalization emphasize its opportunities
(higher global material and immaterial
wealth, increase in employment, reduction
of absolute poverty), while its opponents
prefer to call attention to its dangers (lower
minimum standards, increased social ine-
quality and increase of workload).
Independent of any comprehensive evalua-
tion of globalization, there exists a broad
consensus that globalization results in in-
creased economic growth amongst partici-
pating economies. The real extent of its ef-
fects on individual countries has not yet
been sufficiently quantified, however. In
what follows this question is examined
more intensively. Specifically, we measure
the influence of globalization on real gross
gross domestic product in 42 industrialized
and emerging countries. In order to do this
we first created a globalization index that
measures each individual country's eco-
nomic, political and social interconnection
with the rest of the world. In a second step,
we used this index to estimate the growth
effects of globalization in order to quantify
the income gains caused by globalization
(defined as the gains in real gross domestic
product induced by the globalization) in the
third step.
1.The globalization index
The index used here closely follows the
methodology of the well-established “KOF
Globalization Index” of the Swiss Federal
Institute of Technology (ETH) Zurich (cf.
Dreher 2006). Along with indicators of eco-
nomic globalization (e.g., data on transna-
tional trade in goods and services, trade
barriers and capital controls), it includes
data on social globalization (e.g., interna-
tional tourism, information flows and the
percentage of the total population that was
foreign-born) and political globalization
(e.g., membership in international organi-
zations, the number of foreign embassies in
the country and international contracts).
Using such data for each country and each
year, a globalization index was developed
with values ranging between 0 and 100
where higher index values signal a
stronger interconnection of that country
with the rest of the world. The course of the
globalization index over time for selected
countries is illustrated in Figure 1.

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FutureSocialMarketEconomyPolicyBrief#2014/01
It turns out that small countries like Ire-
land, Belgium and the Netherlands show
the highest scores for international inter-
connection. Large emerging countries like
Brazil, Russia, India and China, on the
other hand, post substantially lower values.
At the same time, however, it can be seen
that these last-named countries have risen
significantly on the globalization index
over the last 21 years. China’s score, for ex-
ample, has more than doubled. Countries
like Belgium, Ireland and the Netherlands,
on the other hand, had already achieved a
very high degree of international connec-
tion by 2000. Since that time, the globaliza-
tion index for these countries remained rel-
atively constant.
2.Growth effects of glob-
alization
In the second step, we used regression
analyses in order to determine the impact
of globalization on real per capita growth.
Based on the period from 1990 to 2011 in
the 42 economies studied, our analysis in-
dicates that a one-point rise in the globali-
zation index results in an 0.35 percentage
point increase in the growth rate of real per
capita gross domestic product. In these re-
gressions we control for additional factors
that potentially influence economic growth
such as inflation, government debt and
public spending. Robustness checks reveal
only small and largely insignificant

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FutureSocialMarketEconomyPolicyBrief#2014/01
differences between estimators that are
specific to sets of countries which differ in
the absolute level their gross domestic
product and per capita income.
The result therefore shows that in the pe-
riod between 1990 and 2011 in the 42
economies studied, globalization had on av-
erage a significantly positive influence that
that proved to be robust across different
specification of the underlying econometric
model. Using this correlation, the influ-
ence of globalization on gross domestic
product level was calculated in a third step.
3.Quantification of glob-
alization gains
Income gains due to expanding globaliza-
tion were identified with the help of the real
gross domestic product (expressed in 2000
prices). To do this, actual gross domestic
product growth between 1990 and 2011 in
the 42 countries was compared with the
hypothetical growth that would have oc-
curred if the international interconnection
of all countries had remained at their 1990
levels. This meant assigning the 1990
value of the globalization index to each
country for each year from 1990 to 2011.
Annual differences in real gross domestic
product between the actual and the hypo-
thetical economic development were
then accumulated and used as the measure
for the gains from globalization.
Examining the overall gross domestic prod-
uct (see Figure 2), economies like Japan,
the United States,
Germany and China
show the largest
globalization-induced
income gains. In Ger-
many for example,
the cumulative gains
in the period from
1990 to 2011 sum up
to more than €2 tril-
lion. This corre-
sponds to about 90
percent of gross domestic product in 2011
and thus more than the total government
debt load of Germany at that time.
In judging their material prosperity, it is ul-
timately not the economic output of the
whole economy that matters to people but
rather the impact on their individual in-
come. As a benchmark for individual mate-
rial well-being, the real per capita gross do-
mestic product figures more meaningful.
When quantifying globalization gains with
this indicator, the ranking of globalization
winners is different (see Figure 3). The
largest average income gains measured in
that way accrue to Finland and Denmark
with an average of €1,500 and €1,420 per
inhabitant per year, respectively. Including
Switzerland, Switzerland, Israel, Austria,
Greece, Ireland and Sweden there are six
additional small economies amongst the
top 10. Out of the large economies, only Ja-
pan and Germany can be found at the top
of the ranking. According to this form of
measurement, the smallest beneficiaries
are the large and emerging economies, in-
cluding all five BRICS countries (Brazil,
Russia, India, China and South Africa).
Significance of globalization for economic growth in Ger-
many: In Germany, the value of the globalization index between
1990 and 2011 rose on average by 0.76 points per year. When
combined with the computed statistical influence of globalization
on economic growth, it turns out that Germany owes about
0.27 percentage points of its annual per capita growth to its grow-
ing interconnection with the rest of the world. This corresponds
to nearly 20 percent of average growth of per capita GDP in the
same period.

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The reasons for this result pertain to the
low starting levels of per capita income in
these countries at the beginning of the pe-
riod studied. Additionally, the gains in glob-
alization index scores made by the large
emerging economies occurred relatively
late. Finland and the other economies at the
top of the ranking, on the other hand, wit-
nessed increases in their globalization in-
dex values right at the beginning of the
study period that led to globalization-in-
duced income gains early on which than ac-
cumulated over the 21-year period.
4. Globalization winners
The determination of "globalization win-
ners" depends greatly on which criterion is
chosen. Besides the one used here (abso-
lute gross domestic product and per capita
gross domestic product), there are numer-
ous other economic values that could be
considered: labor market data, such as em-
ployment or unemployment rates, data on
the level of financial or property wealth, in-
come or wealth distribution indicators, pov-
erty rates, etc. Immaterial indicators, like
life expectancy or education levels, might
also be used. The decision on what criterion
to select for determining a globalization
winner is therefore a value judgment and
as such subjective by definition.
In this study, the globalization winner is se-
lected using per capita gross domestic
product. Even though using gross domestic
product presents a series of shortcomings
– disregard of non-economic dimensions
like health, leisure, education and environ-
ment, failure to include activities that do
not occur in markets (e.g. home daycare,
and volunteer activities) and consideration
of components that increase gross domes-
tic product but do not actually contribute to
well-being (e.g., spending to repair environ-
mental or fire damage) – it continues to
serve as a key indicator of material pros-
perity. As the key indicator for how people
are supplied with goods and services, gross
domestic product is the material basis for a
high quality of life. High material affluence
moreover creates jobs, mitigates conflicts
in distribution and eases financing social
expenditures (education, health, environ-
mental protection, etc.).
As already mentioned, the ranking of glob-
alization winners based on per capita gross
domestic product is led by Finland. Fin-
land, like the other main beneficiaries of
globalization, was able to increase its per
capita gross domestic product from the
start of the study period with the help of
globalization. It is therefore likely that the
technological boom and the important role
played by the Finnish telecommunications
industry in the 1990s were very decisive in
determining the final ranking among glob-
alization winners.
Literature
• Bertelsmann Stiftung and Prognos AG,
Globalisierungsreport 2014 – Wer profi-
tiert am stärksten von der Globalisierung?,
Gütersloh 2014.
• Dreher, Axel, Does Globalization Affect
Growth? Empirical Evidence from a new In-
dex, in: Applied Economics, Vol. 38, 2006,
pp. 1091 – 1110.
• Stiglitz, Joseph, Making Globalization
Work, New York 2006.

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FutureSocialMarketEconomyPolicyBrief#2014/01
Policy Brief 2013/05: Federal States, Industries and Edu-
cation Level – Effects of TTIP in Germany
All major industries and states would benefit from a
transatlantic trade and investment partnership (TTIP). The
greatest manufacturing and employment effects would be
seen in the electronics and metal processing industries.
Baden-Württemberg, Bavaria and North Rhine-Westphalia
would benefit most. Furthermore, it becomes apparent that
new jobs would be created for all education groups – even
for relatively unskilled workers. Their real income could
increase even more than that of highly qualified workers.
Policy Brief 2013/06: Europe’s Sustainability Strategy-
A Casualty of the Euro Crisis or an Ambitious Restart?
Europe’s economy should not just grow, it should also retain
a social dimension and use resources sparingly. The goal of
sustainability may be embedded in the Treaty on European
Union and the EU’s economic strategies, but emphasizing
GDP growth and competitiveness in battling the crisis
threatens to undermine efforts to establish a shared ap-
proach to achieving sustainable economic activity. This may
be unavoidable during an acute crisis. But in the long term,
the EU must show the way forward.
V.i.S.d.P
Bertelsmann Stiftung
Carl-Bertelsmann-Straße 256
D-33311 Gütersloh
www.bertelsmann-stiftung.de
Dr. Thieß Petersen
Phone: +49 5241 81-81218
thiess.petersen@bertelsmann-stiftung.de
Eric Thode
Phone: +49 5241 81-81581
eric.thode@bertelsmann-stiftung.de
ISSN-Nummer: 2191-2467
Upcoming releases:
• Innovation and Employment – An in-
creasingly malign relationship?